HMV's future seen limited to flagship stores and internet

LONDON Jan 15 HMV, the long-established
music retailer seeking protection from its creditors, is
unlikely to have a future beyond a rump of stores and the
internet, if other recent British retail failures are any guide.

After years of struggling as its core business of selling
CDs and DVDs was hammered by competition from online retailers
like Amazon and download sites like Apple's
iTunes, HMV picked consultants Deloitte late on Monday to try to
salvage some of its 239 British and Irish stores.

The decision, which puts over 4,000 jobs at risk, is the
latest blow to an industry which has seen a string of household
names like Woolworths, MFI, and Comet fall by the wayside in a
prolonged consumer downturn.

"It's a shame, it's been around so long. It's like a
bookstore - it's nice to go and browse and feel them (CDs and
DVDs), I'd miss it," said Paul Wood, shopping at an HMV store in
Canary Wharf, London.

However other shoppers, typifying HMV's problems, said they
were just looking before buying from cheaper outlets online.

HMV, famous for its 'Nipper the dog' trademark, is expected
to continue trading while a hunt for buyers is undertaken.

Neil Saunders, managing director at retail consultancy
Conlumino, said potential buyers could be interested in running
the brand online or through some of its larger stores.

"I think the brand will survive," he told Reuters. "I think
it's a good brand with a good emotional connection and I think
someone will want it. And someone will be interested in
acquiring a rump of stores because there are some that trade
profitably within the group.

"A lot of the grocers have their own download services or
mail order services so there could be interest from an existing
player who just wants to use that name. Private equity may also
see it as an opportunity."

One that will not is U.S. private equity firm Apollo Global
Management LLC which ruled itself out of a takeover move
on Monday, a source familiar with the situation told Reuters,
after it bought some of HMV's debt in December.

FAILING TO CHANGE

The support of suppliers - music labels, games manufacturers
and others who look to HMV as one of the last bastions of
entertainment content on shopping streets - has been crucial to
the firm, and support remains.

A spokeswoman for Universal Music, the world's biggest music
company, said it was working with HMV and the administrators to
support the group. "We are very supportive of them because they
have been great trading partners."

However, lenders and stakeholders were not prepared to
strike a financing deal with HMV - whose 176 million pounds of
debt as of Oct. 27 compares with its current market value of
around 5 million pounds - suggesting the company will have to
shrink dramatically if it is to survive.

"I think there is probably still some traction in having a
presence on the high street but it would have to be severely
reduced to be much more cost effective," said Maureen Hilton, an
analyst at retail researchers Verdict.

"There might be some attraction from investors if they can
just pick which stores they have. Otherwise I think it will just
become an online offer."

Any residual presence online would see HMV following variety
stores group Woolworths and rival entertainment group Zavvi.

Other collapsed retailers have managed to sell some stores,
particularly to supermarket groups growing their convenience
shopping businesses, though few have survived to trade under
their own brands beyond a handful of outlets.

HMV, opened on London's Oxford Street by English composer
Edward Elgar in 1921, grew to become a musical powerhouse,
selling records and albums to generations and had a hand in the
Beatles' big break, recommending the group's demo record to
publishers.

But it struggled to reinvent itself when its core markets
went into decline, with expansion into books and live
entertainment failing to change its fortunes and a recent push
towards tablets and headphones coming too late.

"It's a sad but inevitable fate for a much-loved stalwart of
the music industry," Gregory Mead at global music analysts
Musicmetric said. "HMV simply failed to adapt to the changing
tastes of music fans and the seismic shift we've seen as
everything has gone digital."

Next In Cyclical Consumer Goods

Dec 8 Time Inc, the publisher of Time,
People and Fortune magazines, has tapped Morgan Stanley
and Bank of America Corp to help field takeover or
partnership interest, the Wall Street Journal reported.

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